Why did the most Republican banks suffer mortal wounds while the least Republican survived? "I have three explanations," Peter told me. "I'm not sure which one is right, but I am sure at least one of them is."

1. A hostile federal bureaucracy. Despite a Republican in the White House, the bureaucrats who staffed the regulatory agencies, the Treasury and the Fed remain unfriendly to the GOP. Consciously or not, they proved unforgiving toward Bear, Lehman and Merrill but sympathetic toward Morgan and Goldman.

2. An inability to accept reality. At the most Republican institutions, the principals believed in free markets--only too devoutly. Even Milton Friedman would never have argued that markets work perfectly all the time, only that they work a lot better than government intervention. But at Bear, Lehman and Merrill, folks became convinced that the markets possessed almost magical properties. When trouble started, they literally couldn't believe it.

3. Uncoolness. All the investment banks recruited at the same elite universities, and political correctness at such schools is profound. (If you want proof, just look at the last election cycle. The faculty at Harvard contributed to Democrats over Republicans by a ratio of 93 to seven.) At Yale and Berkeley and Wharton--at all the elite schools--the Democratic Party is cool; the Republican Party, decidedly not. The least Republican investment banks were therefore able to snap up the best talent, leaving the most Republican firms to pick through the leftovers. "In big financial institutions," Peter said, "it could be that a Republican profile now correlates with technocratic incompetence."